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 The RBS defense document, lodged in London's High Court late on
Friday, said "it was clear to the market" that the bank's core Tier
1 capital ratio — a key measure of financial strength — was
"significantly below 4 percent" at the time of a rights issue in
2008, even though it did not publish a figure.
RBS said the rights issue prospectus gave an accurate picture of its
capital position and made clear the fundraising was part of a plan
to rebuild its capital ratios.
RBS also rejected the allegation that it was forced into the 12
billion pound rights issue by Britain's financial regulator. The
bank's directors at the time voluntarily launched the cash call that
is at the heart of the lawsuit, according to a copy of the defense
document seen by Reuters.
The Royal Bank of Scotland Shareholder Action Group is suing the
bank and four former directors on behalf of about 100 institutions
and 10,000 private shareholders, alleging they were misled over the
bank's financial strength in a rights issue prospectus published
months before RBS almost collapsed.
Fred Goodwin, the disgraced former chief executive of RBS who was
ousted at the time of the government bailout, is among the directors
accused.
"Had shareholders been given the true picture of the bank's
position, they would have had a better opportunity to assess the
risks which caused the shares to collapse and led to billions of
pounds of losses for private and institutional shareholders alike,"
the action group said in a statement on Friday.
RBS is 82 percent owned by the UK government after a 45 billion
pound taxpayer bailout in October 2008, after the rights issue which
was announced the previous April.
"While RBS and its former directors made some business decisions
that have been criticized, this does not mean that they misled
investors or acted illegally," RBS said in a statement.
"We believe we have strong defenses to the claims that are being
brought against the group and that is why we intend to defend these
vigorously and to protect the interests of our shareholders
including UK taxpayers."
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The defense document said the allegations reflect the benefit of
hindsight and said the last four months of 2008 witnessed
"unprecedented and unforeseeable turmoil" in financial markets.
"Contrary to the allegation made by the claimants, the rights issue
was not forced on RBS by the (Financial Services Authority)," it
said.
Goodwin and other directors decided to proceed with the rights
issue on April 4, 2008, five days before Goodwin met with FSA boss
Hector Sants, the document said.
The Shareholder Action Group could be joined by some of Britain's
biggest institutional investors, which are part of a separate group
considering lodging a claim.
Prudential <PRU.L>, Standard Life <SL.L>, Legal & General <LGEN.L>
and the Universities Superannuation Scheme (USS) are part of the
group, which took up about 10 percent of the 12 billion pound rights
issue under scrutiny.
The case poses a dilemma for large institutions, however, as some
remain leading RBS shareholders and could see the value of their
investments sink if the Edinburgh-based lender loses the case.
Goodwin, dubbed "Fred the Shred" for his cost-cutting policies,
received a knighthood for services to banking in 2004, but was
widely blamed for many of RBS's later troubles and was stripped of
his title in 2012.
(Reporting by Steve Slater; editing by
Elaine Hardcastle and Leslie Adler)
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